Value versus Price

by Steve McKee

When 2008 came to a close, Nestle looked up and saw that revenues were up ten percent, fueled in part by higher prices. Procter & Gamble reports that its premium products are doing just fine, despite being priced 60 percent (Tide Total Care) or 70 percent (Clairol’s Perfect 10) higher than its base brands. Pepsi is stepping up support of its Rockstar energy drink, which sells for five or six times as much per ounce (according to Beverage Digest) as regular soda. Even Gucci Group reported healthy revenue gains in 2008.

What’s going on here? Aren’t we experiencing the worst economy in generations? Indeed we are, but the companies above (and others) understand that their customers are making a flight to value, not merely to cheap. Sometimes value means “less expensive” (GameStop is projecting double-digit sales growth this year based on its used offerings and perception of videogaming as affordable entertainment), but value can also mean “more for your money,” which, through a variety of approaches, Nestle, P&G, Pepsi and Gucci are managing to provide ($2.2 billion in R&D last year at Procter & Gamble, to cite one example.)

The easiest strategy to follow in tough times is discounting. But it can also be the most deadly. Every company should be taking a hard look at its value equation in this environment. But no company should forget that equations always have more than one variable. Providing more value for the money is almost always a better strategy than asking less money for the value.